As costs and fees soar for UK banks, creating new revenue streams is the only option
UK banks are grappling with rising costs and fees, skyrocketing fraud attempts and the ongoing issue of fragmented legacy technologies.
How many income streams are you missing?UK banks must innovate on top of their existing tech stacks to develop multiple revenue streams rather than pass costs on to customers.
– says Steele Prentis of Tieto Banktech.
Fees charged to banks by the major card schemes have risen by 25% in less than a decade. Meanwhile, the average UK bank can expect to be hit by interchange costs of between £150 and £200 million, and fraud costs are soaring as shoppers increasingly choose to transact via digital channels, where fraud can be 15 times higher than at POS, according to LexisNexis/Rapyd.
Faced with rising costs, banks need to make existing infrastructures work harder, developing new revenue streams on top of existing technologies and creating new services.
Amid such cost increases, 92% of UK banks are still operating legacy technology stacks – and they’re looking at modernisation costs of around £800,000 this year for payment systems upgrades alone.
Put all this together, and it’s clear that banks need to make their existing infrastructures work harder, developing more revenue streams on top of their technologies. The alternative is to pass these costs on to customers – hardly an option when Pay.UK say more than one million customers per year now switch their primary banking services provider, up more than 30% since 2020.
Embedding fresh opportunities
On the upside, today’s diverse payments landscape means opportunities exist to create multiple revenue streams layered on top of existing infrastructures. These include everything from embedding lending services for consumers at checkout or digital wallets created at the moment of card activation to creative third-party services layered in via API, including BNPL, multi-currency cards and more.
E-commerce acquiring is another huge opportunity for banks, with Mordor Intelligence projecting that European e-commerce will be worth over $1 trillion by 2030, with growth of more than 8% per year to 2030.
Owning a white-label e-commerce gateway run for the bank by a software provider gives banks the opportunity to unlock data relating to transactions managed by the gateway. This means banks can access rich insights into customer spending patterns and identify new product and service opportunities based on that data – as well as reporting transaction histories to clients as part of their service offering.
Further acquiring opportunities exist in building relationships with online marketplaces to deliver faster, more secure checkout for your customers. Since 2020, UK revenue from online marketplaces such as Amazon.co.uk or Etsy has doubled, and they now constitute 27% of all online retail sales.
Figures like these show why banks should be looking to partner with marketplaces to offer embedded finance solutions such as BNPL or insurance, as well as creating low-friction, faster checkout solutions including Pay by Bank or instant Account-to-Account transactions.
Most banks can see these opportunities – which is one reason why 62% of banks say they plan to redesign their customer journey in 2026 to include new services.
However, introducing new services and rethinking the customer journey doesn’t have to mean investing huge sums in a completely new core payments stack. In fact, the “spaghetti” of legacy payment technologies can often be so complicated that full replacement carries with it too much complexity, cost and disruption risk to contemplate.
New services when you need them
Rather than being put off introducing new revenue streams by the cost of full-stack modernisation, UK banks should look to introduce new services via a modular approach which layers new services on top of existing legacy technologies.
In doing so, banks will not only reduce the structural risk of introducing a new service, and get those services into market faster – they will also be preparing for a future in which banks make money from a diverse range of revenue streams, rather than the per-transaction margins and account fees they have relied on in the past.
This is how we fix it:
Author
Director of Sales - UK & Ireland
